The rise of big emerging economies like China and India, and the steady march of globalization, has led to a surge in the numbers of people wanting to travel abroad for business or tourism. As a result, demand for visas is at unprecedented levels.
In the fiscal year ending in September 2014, the United States granted just under 10 million visas — up from around 6 million in 1997, despite blips in the wake of the terrorist attacks of Sept. 11, 2001, and the global financial crisis of 2008-09.
Citizens of the U.S., Great Britain and some other rich countries can travel to most places without a visa. Chinese and Indian travelers are far more likely to have to apply for them. And citizens of a few benighted places, such as Iraq and Afghanistan, have to submit to the cost and bureaucracy — and often the humiliation — of the visa-application process to get to most places.
The most sensible response to this surge in demand for short-term visas would be for governments to streamline the application process and scrap the most onerous requirements. But governments are often not sensible about such things.
The 26 European countries with a common visa policy — the "Schengen group" — require tourists from India and other developing countries to provide several months' worth of bank statements and pay slips.
Visitors to Britain often have to fill in a 10-page application form, including details of every trip abroad for the past 10 years. Business travelers to India must provide two references. Mexico has scrapped a rule requiring visa applicants (including women) to submit a description of their mustaches. But in 2016, the U.S. will start requiring visas for some travelers who currently do not need them — if, for example, they have visited Iran, Iraq, Syria or Sudan in the previous five years.
In many cases, instead of simplifying the visa process, governments have offloaded it to private contractors. Travelers may now have to pay a service fee to the company handling their application on top of the standard visa fee. The biggest firm in this growing business is VFS Global, which is part of Kuoni, a Swiss tourism company. Starting from a single premises in Mumbai in 2001, handling applications for American visas, VFS now has more than 1,900 visa centers in 124 countries, processing paperwork for 48 governments.
Of the 113 million visa applications made worldwide in 2013, one in three went through a contractor, reckons VFS, which has about half the market. Its main rivals are CSC, with around 10 percent of the market, and TLScontact, with around 7 percent. Dozens of smaller firms make up the remainder of the market.
The private contractors collect and verify the applicant's paperwork, ensure that forms are filled in properly, take fingerprints and other biometric information and collect the fees. The consular staff of the destination country simply decides whether to grant the visa, and slaps a sticker in the passport of successful applicants.
For the contractors, it is a nice little earner. VFS probably enjoys operating margins of 20 percent, reckons Kathleen Gailliot, an analyst at Natixis, a French bank. The companies are given a free hand to pad their earnings with pricey "premium" services.
In Mumbai, for example, VFS offers Indians applying for British visas a text on their mobile phones to notify them that their passports are ready for collection, at 128 rupees ($2) a shot. VFS accounts for just 5 percent of Kuoni's revenue but more than 60 percent of its operating profits. So bright are the division's prospects that its parent company is getting out of the tour-operator business, which it has been in since 1906, to concentrate on visa-processing and a few other specialist travel services.
Until VFS opened its Mumbai office, applicants had to queue for an average of five hours in the sweltering heat outside the American consulate. After the job was handed to the contractor, the typical waiting time fell to one hour.
The application-processing firms are profiting both from travelers' lack of choice and from governments' failure to consider the economic damage caused by their visa requirements. There is scant evidence that making all travelers submit the same documents every time they want to travel, or provide extensive financial details, protects countries from terrorists or illegal immigrants.
In contrast, there is evidence of how liberal visa regimes bring in the bucks. A report in 2014 from the European Parliament, "A Smarter Visa Policy for Economic Growth," estimated that overstrict visa rules probably cost the E.U. economy 250,000 jobs and $13.8 billion a year in lost output. It recommended requiring fewer documents from applicants, handing out longer visas and simplifying the whole process.
Since Britain is not part of the Schengen group, Chinese people taking a tour of Europe have to apply for a second visa to cross the Channel. Only 6 percent of them do so, says Euromonitor, a research firm. The British Tourist Authority has complained that the country's visa policies cost it $4.1 billion a year in lost revenue.
However, amid worries about the wave of asylum-seekers from Syria and elsewhere, governments in Europe and beyond will face pressure to keep making life hard for tourists and business travelers — even as other departments of those same governments spend heavily on promoting tourism and foreign investment.
Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.